A health savings account, or HSA, lets you put aside money for medical expenses while taking a tax deduction for the contributions you make to the account. While you can use HSA money to pay for a variety of medical and dental services and procedures, you generally can't use it to pay premiums for health insurance. There are some exceptions, however.
Who's Eligible for an HSA
You can open an HSA only if you are enrolled in a high deductible health plan. That's an insurance plan with higher out-of-pocket costs than most. As of 2015, plans meeting these criteria were considered high-deductible:
- For single coverage, an annual deductible of at least $1,300 and a maximum annual out-of-pocket cost of at least $6,450. (The latter number rises to $6,550 in 2016.)
- For family coverage, an annual deductible of at least $2,600 and a maximum annual out-of-pocket cost of at least $12,900. (The latter number rises to $13,100 in 2016.)
The key thing to understand here is that anyone with an HSA is already covered by insurance, and the tax code already includes deductions for insurance premiums. (Premiums for employer-sponsored insurance are paid with pre-tax dollars.) So using tax-exempt HSA money to pay premiums would essentially be claiming two deductions for the same expense.
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Premiums You Can Pay With an HSA
There are several exceptions to the rule against using HSA money for insurance premiums. Most of these apply in situations where you're in transition from one job or insurance coverage to another. You can use funds from a health savings account to pay:
- Premiums for continuation coverage under COBRA, the federal law that allows you to keep your health insurance after leaving a job, as long as you pay the full cost yourself. You can use HSA money to pay COBRA premiums both for yourself and for your family.
- Any health insurance premiums while you're receiving unemployment benefits. Here, too, you can use HSA money to pay premiums for both yourself and your family.
- Medicare premiums for Part A or Part B coverage, if you're 65 or older.
- Premiums for long-term care insurance. The amount of HSA money you can use for these premiums depends on your age.
If you do pay any of these insurance premiums out of your HSA, you cannot take any other deduction for those premiums.